Credit Suisse Sued Over Sale of More than $10 Billion in Mortgage Backed Securities

The State of New Jersey has filed a lawsuit against Credit Suisse Securities (USA) LLC and two of its affiliates alleging that they offered more than $10 billion in residential mortgage backed securities trusts for sale while misrepresenting the risks involved in the investments and failing to disclose to investors information about significant defects in the offerings.

The lawsuit alleged that Credit Suisse did not disclose to investors there had been a wholesale abandonment of underwriting guidelines designed to ensure that the mortgage loans underlying its securities trusts were made in accordance with appropriate lending guidelines.

In addition, it allegedly was not disclosed to investors that numerous loan originators had poor track records of defaults and delinquencies, and some even had been suspended from doing business with Credit Suisse. Other material information that was not disclosed, according to the lawsuit, included that:

- Approximately 25 percent of the loans that Credit Suisse had examined were underwater with combined loan-to-value ratios of more than 100 percent.

- Credit Suisse’s traders had warned against the risky nature of certain types of loans, and were not willing to hold them on Credit Suisse’s own books at the same time Credit Suisse was unloading them to investors.

- Credit Suisse had pocketed tens of millions of dollars in reimbursements from loan originators arising out of defective loans, without passing those funds along to the trusts that actually owned the loans.

The lawsuit named Credit Suisse Securities (USA) LLC and its affiliates Credit Suisse First Boston Mortgage Securities Corp. and DLJ Mortgage Capital, Inc. as defendants. Acting New Jersey Attorney General John J. Hoffman noted that the alleged conduct outlined in the state’s complaint was particularly egregious because investors in the mortgage-backed securities sold by Credit Suisse included charities and educational institutions, as well as public and private pension funds.

“The kind of conduct described in this lawsuit is the kind of conduct that helped put the nation in financial crisis, with loan originators and investment banking firms abandoning prudent lending guidelines in order to generate quick profits,” said Hoffman. “Ultimately, it was consumers who suffered the harm caused by these reckless lending practices, and by the misrepresentations used to make these doomed investments seem attractive. This kind of conduct cannot, and will not, be tolerated.”